Africa has achieved significant progress in curbing tax evasion and illicit financial flows according to Tax Transparency in Africa 2020, a joint publication of the Global Forum, the African Union Commission, and the African Tax Administration Forum.
The report, recently launched as part of the Africa Initiative, shows major progress achieved on the two cornerstones – raising political awareness and commitment, as well as developing capacities in tax transparency and exchange of information, both of which play a crucial role in helping the region stem illicit financial flows and increase domestic revenue mobilization.
African countries’ EOI network has been expanding rapidly. It reached 3,262 bilateral relationships in 2019, compared to 685 in 2013, mainly due to the growing number of countries joining the Convention on Mutual Administrative Assistance in Tax Matters. The number of exchange requests sent by African countries increased more than eightfold since the start of the Initiative in 2014.
These impressive developments directly translated into additional tax revenue, the report says, allowing a group of eight African countries to secure $189 million in extra revenue between 2014 and 2019.
Significant participation was also observed in the implementation of the automatic exchange of information – Ghana started exchanging in 2019, joining Mauritius, Seychelles, and South Africa. Nigeria is expected to start in 2020 and Morocco in 2021 while assistance is ongoing with five countries to help them move towards the implementation of this standard.
Three additional African countries joined the Global Forum in the last year and six added their weight to the Yaoundé Declaration, expanding the region’s international partnerships on tax transparency. Active partnerships with multilateral organizations have significantly contributed to the fight against IFFs and have helped raise political advocacy across the continent, the report says.
Despite the progress, further efforts are needed to support domestic revenue mobilization and important challenges remain ahead, the report adds, citing the expansion of staff knowledge, the availability of beneficial ownership information, and the effective implementation of AEOI.
A report by the United Nations Economic Commission for Africa estimates that African countries lose more than $50 billion each year to illegal financial outflows, most especially through tax avoidance and evasion.
Nigeria represents the epitome of poor tax compliance. With around 200 million people, it is the continent’s most populous country with huge needs but has the lowest tax-to-GDP ratio of any nation – just 5.9 percent – contained in a report by the International Monetary Fund. In comparison, South Africa has a population three times smaller than Nigeria, but a tax-to-GDP ratio of 24.7 percent.
The billions of dollars Africa loses in tax revenues due to the super-rich using tax havens is enough money to pay for healthcare to save the lives of 4 million children and to employ enough teachers to get every African child into school, according to Oxfam.
“Now more than ever, the work on increasing transparency is important for Africa,” said Logan Wort, Executive Secretary of ATAF. “The collaborative efforts of ATAF and the Global Forum will ensure that African countries increase their exchanges of information while contributing to the fight against illicit financial flows.”
The ongoing COVID-19 crisis has further highlighted the need to bolster national coffers in Africa as governments struggle to adequately respond to the pandemic with weak financial muscle. The pandemic will “completely end any tolerance towards all forms of tax evasion,” said Maria José Garde, Chair of the Global Forum on Transparency and Exchange of Information for Tax Purposes.